Wockhardt up 13% after falling 33% in six weeks

The stock moved higher by 13% to Rs 503 on the BSE in intra-day trade on Monday, after hitting four-year low of Rs 437 on Friday.

Shares of Wochardt were moved higher by 13 per cent to Rs 503 on the BSE in intra-day trade on Monday on the back of heavy volumes. The trading volumes on the counter nearly doubled with a combined 2.98 million equity shares changed hands on the BSE and NSE till 03:00 PM.

The stock of drug maker had underperformed the market by falling 33% in past six weeks from Rs 676 on September 14, 2018, after the rating agencies downgraded the long term bank facilities of the drug company. On comparison, the S&P BSE Sensex has shed 12.5 per cent till Friday.

The stock hit a low of Rs 437 on October 26 in intra-day trade, its lowest level since March 26, 2014. The market value of the company plunged 57 per cent from its 52-week high level of Rs 1,012 touched on January 8, 2018 in intra-day trade. The S&P BSE Sensex was down 1 per cent during the same period.

CARE Ratings and India Ratings and Research (Ind-Ra) have downgraded Wockhardt’s long term issuer rating owing to delay in resolution of regulatory issues, continuous expense towards research & development expenses, on-going remediation costs being incurred etc.

“The revision in ratings assigned to the bank facilities/proposed non-convertible debenture issue of Wockhordt takes cognizance of continued losses in Q1FY2018-19, Q4FY2017-18 and FY2017-18 (refers to period from April 1, 2017 to March 31, 2018) and delay in raising funds/refinancing o f existing debt amidst upcoming significant debt repayments in H2FY2018-19 & FY2019-20, thereby, weakening its overall financial profile and leading to significant pressure on liquidity,” CARE Ratings said in a release.

The ratings also take into account significant delay in resolution of regulatory issues with the US Food and Drug Administration (USFDA) despite on-going remedial measures and continuous expense towards research and development (R&D) expenses impacting profitability. Besides, the ratings also take into account exposure to regulated markets especially the USA, which is witnessing increased competition resulting into pricing pressure coupled with heightened regulatory scrutiny and exposure to foreign exchange fluctuation, the rating agency said October 19, 2018.

“The negative outlook reflects Wockhardt’s continued delays in shoring-up liquidity and/or debt refinancing, owing to challenging market conditions, which have elevated refinancing risks for FY19-FY20, weak free cash flow for two consecutive years has significantly depleted cash balances and liquid investments,” Ind-Ra said in statement.

The management is evaluating refinancing options for the large upcoming debt repayments through an international bond or a qualified institutional placement/ term loans in India. While the efforts are under advanced stages of discussion, adverse market conditions and refinancing structure are likely to determine the timeline and cost of refinancing. Also, sustained mitigation of refinancing risk critically depends on an operational turnaround in FY20, it added.

The seven of Wockhardt's facilities were under regulatory restrictions by USFDA at end-march 2018, one of its two flagship formulation facilities in Waluj and one in Chikallhana (both in Aurangabad) continue to be under import alerts since 2013, The other facility in Waluj received a warning letter in 2013. Also, the facilities under the subsidiaries CP Pharmaceuticals (UK) and Morton Grove Pharmaceuticals, Inc (US) were issued warning letters in FY17. Morton Grove Pharmaceuticals and the facilities in Waluj contribute around 80% to the sales to US markets. An escalation to an import alert for them would affect overall operations and delay recovery, the rating agency said on October 12, 2018.